Despite a strong demand for 7″ tablets, an analyst reports that Apple will not be adding one to its product line next year. Instead, however, we may see the iPad 2 at a lower price.

According to Blair, contrary to rumors Apple will not be releasing a 7″ iPad, unofficially dubbed “iPad mini.” He cited various reasons, but the words of Steve Jobs were among the most prominent, and AllThingsD pulled out the particular quote.

“One naturally thinks that a 7-inch screen would offer 70 per cent of the benefits of a 10-inch screen,” Jobs said during a 2010 earnings call. “Unfortunately, this is far from the truth. … The reason we [won’t] make a 7-inch tablet isn’t because we don’t want to hit [a lower] price point, it’s because we think the screen is too small to express the software. As a software driven company, we think about the software strategies first.”

It’s no secret that Apple’s been testing 7″ tablets, as Blair freely admits, but in his view Apple will not be releasing it in 2012. Part of the appeal of a smaller tablet is the price point. Smaller tablets are usually priced in the mid-level price range, below $400. Blair thinks Apple will use a different strategy to hit that tier:

“We believe Apple is highly likely to keep the iPad 2 on the production line after the launch of iPad 3 and offer it at a lower price point in an effort to address demand at the mid-tier, what we view as the $249 to $499 range. We believe iPad 2′s price could drop to the $349 to $399 range with Apple offering a single 16GB model.”

Keeping the iPad 2 alongside the new iPad 3 at a cheaper price point will definitely give Apple a way to hit that lower tier without forcing users to deal with screens that are “too small to express the software.”

Would you buy a cheaper iPad 2? Or would you prefer a smaller 7-inch iPad?

[via AllThingsD]